Agarwal Engineering Co. Vs.
Technoimpex Hungarian Machine Industries  INSC 146 (18 July 1977)
SARKARIA, RANJIT SINGH, JASWANT
CITATION: 1977 AIR 2122 1978 SCR (1) 167 1977
SCC (4) 367
Arbitration Act-Parties entered into two
separate contracts on different dates for sale of machinery and appointing the
appellant as sole selling agent of the machinery-Both contracts contained
arbitration clauses-Whether arbitration clause in later contract supersedes the
arbitration clause in earlier contract.
As a result of negotiations between the
appellant, an Indian engineering concern and the respondent, a Hungarian State
Undertaking carrying on export import trade, the parties had drawn up on April
2, 1970 (Annexure A) a, broad arrangement between them. The first four clauses
of Annexure A related to the appellant being chosen to represent the respondent
in the sale of their goods exclusively in certain specified States in India and
the second part deals with the purchase of two specific items, namely,
Counterblow Hammer Type EK 25 and EK 13A machines. On the same date two formal
contracts (Annexurea B1 and B2) were entered into between the parties.
Clause 8 of Annexures B1 and B2 states that
all questions, disputes, etc. relating to the contract, shall be referred to
the arbitration of Bharat Chamber of Commerce. By an agreement dated April 6,
1970 (Annexure C) the appellant was appointed as sales-representative of the
respondent. Clause 14 of this agreement contained an arbitration clause. But
the two arbitration clauses differed on the composition of the arbitrators as
well as the substantive and processual laws to be applied.
The appellant alleged that there was a breach
of contract in that the machines supplied by the respondent did not accord with
Disputes having arisen between the parties as
to which of the two arbitration clauses of the agreements was applicable, the
High Court held that the arbitration clause in an Annexure C was the one
binding on the parties.
Allowing the appeal,
HELD : (1) 'Me arbitration clause that
governs the sales of the two items of machinery in these proceedings is cl. 8
of Annexure B1 and B2. Annexures B1 and B2 are self-contained and constitute a
separate contract-set and they exclusively relate to the terms of purchase of
EK 25 and EK 13A.
Annexure C is futuristic and relates to sales
'agency' and later purchase. [174 D] (2)The reference by the High Court to the
principle that the last deed must govern the relationship between the parties
superseding the earlier ones, when there is inconsistency between the two has
no room for play here.
[175 D-E] (3)Clause 1 of Annexure A grants a
right of exclusive representation to the appellant "to act as its sole agent"
in certain specified territories. Clause 2 states that "the detailed text
of the agreement will be air-mailed until the 7th April, 1970". Clause 5
deals with the appellant agreeing immediately to place an order for machines.
Two machines had been agreed to be sold and to give effect to this agreement
referred to in cl. 5 to 8 of Annexure A, two orders, each independent, namely,
Annexure B1 and B2, were executed on April 2, 1970. The terms and conditions of
these two sales were printed on the back of the order, the first of which
stated "this order shall be the sole repository of the transaction. . . .
". If the exclusive repository of the terms of the transaction was
Annexures B1 and B2, purchase of the machinery EK 25 and EK 13A was covered by
this complete deed and there was no justification for travelling beyond it to
ascertain the intention of the parties. [172 A-B; H] 168 (4)The totality of the
terms concerning the sale of the two machines had been documented in Annexure
B1 and B2, such a concluded contract could cease to be operative ordinarily
only by performance or novation or in any other manner known to the law of
contract. [173 C] In the instant case, cl. 8 of Annexures B 1 and B2 is valid,
unless Annexure C extinguished Annexures B1 and B2. [173 D] (5)The whole of cl.
1 of Annexure C devotes itself to the appointment of the appellant as sole
buyers from the respondent. The terms "hereby" and
"hereinafter" mentioned in that clause postulated that while the
minutes (Annexure A) projected the proposal for appointing the appellant as
exclusive agents it was only under Annexure C, the actual scheme was to come
into force on acceptance, and not from any anterior date. Moreover, absence of
"special introduction discount" in Annexure C in contrast to such a
provision in Annexures B1 and B2 only showed that Annexure C did not deal with
the two sales covered by Annexures B1 and B2. [173 F] Clause 12 of Annexure C
stated that "this agreement is valid from after the 7th April, 1970".
The two machines in dispute were agreed to be purchased on April 2, 1970 under
Annexures B1 and B2 but Annexure C became operative. only in regard to
transactions from after April 7, 1970. These terms cannot be given retroactive
effect since cl. 13 expressly states that "this agreement enters into
force when both parties have signed it." [174 A]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1413 of 1976.
Appeal by Special Leave from the Judgment and
Order dated 32-1976 of the Calcutta High Court in Award Matter No. 109 of 1975.
V. M. Tarkunde, B. M. Bagaria and D. P.
Mukherjee for the Appellant.
Sachin Choudhary and D. N. Gupta for the
The Judgment of the Court was delivered by
KRISHNA IYER, J. Commercial causes, we may observe prolegomenary fashion,
should, as far as possible, be adjusted by non-litigative mechanism of
dispute-resolution, since forensic processes, dilatory and contentious, hamper
the flow of trade and harm both sides, whoever Wins or loses the lis. That. is
why arbitration is often prudently resorted to when controversies erupt in the
course of business dealings But when basic differences spring up as to which is
the arbitration clause that governs, in a plurality of contracts or several
steps in evolving a final contract but containing divergent arbitral
provisions, the Court comes into the picture, willy nilly. Even so, having
regard to the larger interests of justice, an exercise in pretrial settlement,
consistent with judicial non-alignment, is desiderable, and so we had suggested
to counsel, at an earlier hearing, to bring the parties together on the limited
question of the arbitral locus and law, but, notwithstanding genuine efforts by
counsel, and perhaps due to substantial factors weighing with the parties, the
effort proved fruitless. A legal adjudication may be flawless but heartless but
a negotiated settlement will be satisfying, even if it departs from strict law.
The respondent's counsel stated that his client a foreign State Trading
Organization-was rather keen-and this may well be true-on getting the law
declared by this Court for future guidance and so we proceed to narrate the
litigative story and 169 cut the legal knot for the benefit of both sides.
Since the subject matter relates to the sensitive area of foreign trade we still
hope the dispute, even after our pronouncement, will be dissolved and goodwill
and business dealings revived between the parties to their mutual benefit.
The dramatis personae or legal actors in this
action are an engineering firm in India (the appellant) and a Hungarian State
undertaking doing export-import trade with other countries in machinery (the
respondent) and the contest relates to the competency of the appellant to refer
a dispute regarding purchase of two Hungarian Counterblows (machinery). The
Indian went to Budapest to try and buy Hungarian machinery and the negotiations
fructified as the minutes of April 2, 1970, drawn up of the broad arrangement
between the parties, disclose. Having been followed up by format deeds, these
minutes mark the beginning of and serve as setting to but not in themselves
constitutive of complete contracts. A significant dichotomy which characterises
these minutes cannot be missed, though resisted by counsel for the respondent.
The first part relates to the appellant, being exclusively chosen to represent
the respondent in the sales of their manufactures in certain specified States
in India. The second part is devoted to purchase of two specific items of
machinery plus provision for a third to be concretised. later. This duality
analysis may be driven home by reading the text of the minutes here MINUTES
Drawn in Budapest on the 2nd April, 1970, Present....
1. Technoimpex grants the right of exclusive
representation to the Agarwal Engineering Company to act as its sole agent in
the territories of West Bengal, Bihar and Orissa. It will be decided at a later
date whether the representation agreement will be extended to the State of
2. The detailed text of the agreement will be
air-mailed until the 7th April, 1970.
3. A letter in duplicate addressed to STC
with the request to issue a stock and tale licence in a value of 2 Million
Rupees will be sent to the Hungarian Trade Commissioner in Calcutta who hands
over it to M/s. Agarwal Engineering Co., after signing the Agency agreement.
4. Detailed proforma invoices in six copies
will be sent with the agreement and catalogues at least six copies.
5. It has been agreed that Technoimpex
supplies and the Agarwal Engineering Company immediately places the order for
the following machies :
One counterblow Hammer Type EK-Gross C &
F Price Rs. 1,000.000 One counterblow Hammer Type EK-13A Rs. 522.596 Other
machines in a value of Rs. 300.000 170
6. Technoimpex grants a special introduction
discount of 10% in the free Hungarian border prices i.e. on EK-25 Rs. 915.550
EK-13A Rs. 466.200 and of 5% in the free Hungarian border prices of the other
machine, as per price list handed over to the Agarwal Engineering Company.
7. Payment conditions of counterblow hammer
type EK-25 would be : 25" through irrevocable L/C to be opened 30 days
before the date of dispatch.
75% in 3 years in 6 equal installments for
which 6% interest will be charged extra EK 13A counterblow hammer will be paid
25% through irrevocable L/C to be opened 30 days before the date of dispatch.
75 % 12 months credit to be paid in two equal
installment& for which 6% interest will be charged extra.
Other machine types will be supplied at 6
months credit and 6% interest will be charged p.a.
The guarantee of a first class bank should be
sent with the order to cover the credits granted. The credit is reckoned from
the date of B/L.
In case of cash payment no interest will be
8. The machines mentioned in these minutes
can be sold only in the territories enumerated under S.I. by M/s.
Delivery terms :
Counterblow Hammer Type EK-25 16th October
Counterblow Hammer Type EK-13A 15th October
Budapest, 2ND April 1970.
On Behalf Agarwal Co. On behalf of
Technoimpex." The first four clauses focus on the 'exclusive
representation' rights while the last four specificate the agreed terms for
purchase of two items of machinery, such as the price, 'introduction discount,
conditions of payment and the like. The former speak of what is proposed to be
done, to be set down in an agreement to be dispatched on or before April 6,
1970. The latter, now and here, spell out the essential contents of two
contracts of purchase of two Counterblows Hammer Type one EK-25 and the other
EK-13A. In keeping with this legal 'dialysis we find on the same date, i.e.,
April 2, 1970, two formal contracts relating to the sale of the 'Counterblows.
These run virtually on the same lines and set out the terms of the two sales,
one of the common terms whereof engrafts an arbitration clause (clause 8) which
reads "8. All matters, questions, disputes, differences and/or claims
arising out of and/or concerning and/or in connection with and/or in
consequence of or relating to the contract whether or not the obligations of
either or both parties under this contract be subsisting at the time of such
dispute and 171 whether or not this contract has been terminated or purported
to be terminated or completed shall be subject to the jurisdiction of Calcutta
High Court only and shall be referred to the jurisdiction of Calcutta High
Court only and shall be referred to the arbitration of the Bharat Chamber of
Commerce under the rules of its Tribunal of Arbitration for the time being in
force and according to such rules the arbitration shall be conducted.
" We have stated at the outset that the
Minutes (Annexure A) envisioned the appointment of the appellant firm as sales
representatives of the respondent exporters and this project is given concrete
form in the shape of an agreement dated April 6, 1970 (Annexure C, p. 86). It
is not in dispute that this, by acceptance, ripened into a contract with
detailed terms and conditions one of which is an arbitration clause (cl. 14).
It is substantially different from the earlier one. We may set it out without comment
since it is patent and uncontested that the two arbitral provisions diverge on
the for of decision, the composition of the arbitrators as well as the
substantive and processual laws to be applied. Briefly, the bone of contention
between the parties is the bare question. of which of the two incompatible
arbitration projects governs the dispute about the sale of the two machines
mentioned in Annexures B1 and B2. For, these were forwarded by sea, one to
Calcutta and the other to Bombay, but according to the appellants the goods
delivered did not accord with the bargain and the contract had been breached by
This controversy erupted in two proceedings,
one at the instance of the appellant under s. 41 of the Arbitration Act and the
other, instituted by the respondent, under s. 33 of that Act. The former failed
and the latter-succeeded and from this adverse order the appellant has arrived,
under special leave, to challenge its correctness.
The High Court has set out the details of the
two proceedings but the crux of the matter turns on one material issue. Did the
second contract (Annexure C) supersede the earlier contract (Annexures B1 and
B2) so that by novation the first contract, and together with it the
arbitration clause, perished and could not be availed of by the appellant? If
annexures B1 and B2 as well as annexure C, related to independent subject
matters and could co-exist without the latter superseding the earlier, the
appellant would succeed in the appeal. On the contrary, if Annexure C took in
its wings the contract relating to the sale of the two items of machinery, the
minutes (Annexure A) being the basis, the documents annexures B1 and B2 being
steps towards the culmination of the contract which found expression in
Annexure Cas argued by Shri Sachin Choudhry on behalf of the respondent then,
maybe the terms for the purpose of reference to arbitration would have to be
sought in Annexure C and not in the earlier 'contracts'. Shri Sachin
Choudhary's position also is that no case of novation arises because there has
been no contract arrived at under Annexure B1 and B2, the real and the only
contract being Annexure C.
A study of the relevant clauses, taking a
conspectus of the triple stages, may take us to a sound solution of the legal
problem. The minutes, Annexure A have been scanned by us earlier. Even so, an
12-722 SCI/77 172 insightful scrutiny may be helpful in unlocking the problem
confronting us. Annexure was drawn up in Budapest where both the parties were
present. Clause (1) grants a right of exclusive representation to the appellant
by the respondent 'to act as its sole agent in the territories of West Bengal,
Bihar and Orissa'. The very next clause states that 'the detailed text of the
agreement will be air-mailed until the 7th April 1970.' Clauses 3 & 4 are
mainly in furtherance of the 'agency agreement'. What is important to notice is
that the agreement to be concluded as per clause 2 relates to 'the right of
Then we start off with clause 5 onwards. This
fasciculus of clauses is devoted to the immediate purchase of Counterblow
Hammer Type (EK 25 and EK-13A) machines. Contextually and discerningly read,
clause 5 deals with the appellant agreeing immediately to place an order for
three machines two of which we have just referred and the third was not to be
bought right away but only later, although its price was indicated in clause 5.
Since the parties were beginning a business relationship which was expected to
be enduring, the respondent granted a ,special introduction discount' of 10% on
EK-25 and EK-13A and 5% on the other machine which was the third item in clause
Clause 7 speaks of the payment conditions and
Clause 8 puts a condition on the area in
which the machines purchased as per clause 5 are to be sold. The terms of
delivery, especially the time of delivery, are also, set out in cause 8 of the
minutes. It follows that the contention of Shri Sachin Choudhry that Annexure C
is one integral document and to dichotomise it as Shri Tarkunde, counsel for
the respondent did, is to do injury to the consensus of the parties is
unacceptable. Actually there was to be a principal to principal relationship
established between the parties and, to start with, there was to be an immediate
purchase of two or three items, forthwith, the terms whereof were generally set
down. It is apparent that two machines had been agreed to be sold and to give
effect to this agreement referred to in clauses 5 to 8 of Annexure A, two
orders, each independent, viz., Annexures B1 and B2, were executed between the
parties on the same date, viz., April 2, 1970. The seller and the buyer had
already settled the terms of the sale and so it was thought they could and did
execute specific contracts in regard to the two machines.
The terms and conditions of these two sales
were identical and were printed on the back of the 'order/indent'.
Moreover, almost every detail of the manner
of despatch, the manner packing, the prepayment of freight, the time for dispatch
and the manner of drawing up the invoice and many other particulars, including
'full literature, drawings, instructions covering the supply and insurance
policy covering comprehensive risks was written into Annexures B1 and B2. It
was also indicated that part delivery would not be accepted and that the
destination was 'Calcutta/ Indian port.
The terms and conditions printed over leaf
again ran into further details. But what is most significant in the very first
condition which states : 'This order shall be the sole repository of the
transaction and the terms and conditions mentioned herein shall not apply,
(emphasis added). Thus the nidus of the terms and conditions governing the
contract regarding the purchase of the two mechines was Annexures 173 B1 and B2.
If the exclusive repository of the terms of the transaction was Annexure B1
(and B2), we could sensibly infer that the purchase of the machinery EK-25 and
EK-13A was covered by this complete deed and there was no justification for
travelling beyond in to ascertain the intention of the parties connected with
the bargain relating to the sale of the two machines. Prima facie, therefore,
the parties were bound to abide by the arbitration clauses, contained in
condition 8 of Annexure B-1 and B-2. Indeed, clause 9 made the supplier
responsible for 'all consequences by virtue of fines etc.' arising from wrong
shipment of goods and it was also clearly stated that the prices mentioned in,
this order were firm and that they would not be altered even after any gold price
variation unless otherwise specifically mentioned therein. In one sense,
therefore, the totality of the terms concerning the sale of the two machines
had been documented in Annxeures B-1 and B2. Such a concluded contract could
cease to be operative ordinarily only by performance or novation or in any
other manner known to the law of contract. In the present case the ,dispute was
regarding whether there had been proper performance, and, this dispute was
sought to be referred to the Bharat Chamber of Commerce as envisaged in clause
8 of Annexures B1 and B2. Such ,a proceeding would be valid, unless, as was
contended by Shri Sachin Chaudhri, Annexure C extinguished Annexures B1 and' B2
so that a 'substitution or novation took place, of course, it is fair to state
that Shri Sachin Chaudhry drew our attention to certain details and minor
differences between Annexure B series and Annexure C, which, in our view, are
but frills and do not affect the core contention.
We may, in this, view, have to examine the provisions
in Annexure C and their effect upon Annexures B1 and B2. The competing
clauses-rather, the rival versions-from their relevance to the question posed
above, may be looked into at this stage. Clause (i) is significantly
"Sellers hereby appoint buyers as sole
buyers of their machine tools of all kinds,... on the terms and conditions
hereinafter mentioned and the buyers hereby accept such appointment on such
terms and conditions". The whole clause clearly devotes itself to the appointment
of the appellant as 'sole buyers' from the respondent. The emphasis on 'hereby'
and 'hereinafter mentioned' postulated that while the minutes Annexure A
projected the proposal for appointing the appellants as exclusive agents it was
only under Annexure C, dated April 6, 1970, the actual scheme was to ,come into
force. on acceptance, and not from any anterior date. ,Clauses (2) and (3) do
not relate to the 'sales representatives' part of the contract. Clause (4)
continues the same idea and spells (-,tit the terms of the sale. It is
noteworthy that there is no 'special introduction discount' provided for in
Annexure C in contrast to such a provision in Annexures B1 and B2. The likely
inference is not that the said discount is withdrawn but that Annexure C does
not deal with those two sales (covered by Annexures B1 and B2).
Likewise, the terms of payment mentioned in
clause 5 are such as are 'to be arranged from time to time' while Annexures B1
and B2 specify the terms of payment so far as the two machines covered by them
were concerned. The subsequent clauses (6) to (11) deal with 174 kindred
matters of sales agency. Clause 12, captioned 'duration of agreement' states
that 'this agreement is valid from after the 7th of April 1970 till 31st
The two machines with which we are concerned
in this appeal were agreed to be purchased, as it were, on April 2, 1970, under
Annexures B1 and B2 but Annexure C became operative only in regard to
transactions from after April 7, 1970.
Indeed, these terms cannot be given
retroactive effect since clause 13 expressly states that 'this agreement enters
into force when both parties have signed it'.
Clauses 15, 16 and 17 are also not germane to
the purchase of the two machines but in the background we have traced, clause
14 has to be decoded. That clause, as already mentioned, is a new arbitration
clause. substantially different from the one contained in Annexures B1 and B2.
The question is : Can the arbitration
provision in clause 14 have retroactive effect to bind sales effected on April
2, 1970 especially when such a contention runs in the teeth of clause 13 which
directs that Annexure C shall enter into force only when both parties have
signed it, which event obviously took place only on or after April 6, 1970.
The analysis of Annexures A to C which we
have made, leads only to, one conclusion, viz., that Annexures B1 and B2 are
self-contained and constitute a separate contract-set, and that they
exclusively relate to, the terms of purchase of EK 25 and EK 13A. Annexure C is
futuristic and relates to sales 'agency' and later purchases. The arbitration
clause that governs the sales of the two items of machinery in these
proceedings is clause B. in Annexures B1 and B2. This necessarily means that
the dispute between the parties may be completely arbitrated by the Arbitration
Tribunal of Bharat Chamber of Commerce.
The High Court has taken a contrary view,
ignoring the effect of Annexures B1 and B2 and over-emphasising, indeed
misreading, the minutes of April 2, 1970 and the deed of April 6, 1970. These
two formal contracts (B1 and B2) have been dismissed not by argument but by
"In my view, the placing of the order by
the Standard Printed indent/order form of the Respondent with the petitioner
for the supply of the said two machines can only be in pursuance of the said
Parent agency agreement which was arrived at between the Parties in the meeting
dated,' the 2nd of April, 1970 and the details were of which was formally
recorded in the document dated the 6th of April, 1976. The party never intended
that the said order/indent placed by the respondent with the petitioner would
be an independent and separate agreement as now sought to be contended by Mr.
Bhabre on behalf of the Respondent." How the learned Judge reaches the
conclusion that the arbitration clause in B1 and B-2 is inoperative beats our
175 "Further, from the minutes of the
meeting dated the 2nd of April, 1970, and the document dated the 6th of April,
1970, it is made quite clear that the parties intended to have transaction only
on the basis of the forms which were fully set out in the document dated the
6th of April, 1970. Therefore, the arbitration clause in the said document
the 6th April, 1970, is the one which is operative
and binding between the parties and the arbitration clause in the Standard
Printed Indent/Order form of the Respondent has no effect as the said order was
formally placed in pursuance to the agency agreement arrived at between the
Parties as recorded in the minutes of the meeting dated the 2nd of April,
1970." Once we grasp the scenario of events and execution of documents and
give full effect and intelligible coordination to the various documents it
becomes clear that there is no sequitur in the High Court's reasoning. Nor are
we able to persuade ourselves, as the High Court has done, that there may be
ambiguity as to the interpretation of the series of documents and the terms of
the contract concerned.
We agree that all the machinery purchased by
the appellant or to be purchased by him from the respondent, except the two
items covered by Annexures B1 and B2 are governed by Annexure C. The reference
by the High Court to the principle that the last deed must govern the
relationship between the parties superseding the earlier ones, when there is
inconsistency between the two, assuming it to be right, has no, room for play
here. Subsequent documents, such as the Protocol of November 14, 1970, February
26, 1971 and the like, do not vary the jural relationship, vis a vis the sale
of the two items of machinery we are concerned with. We are unable to agree
with Shri Sachin Choudhry that the said protocol shows that Ex.C was taken to
be the sole matrix of the contractual terms regarding the purchase of EK. 25
and EK. 13A. Neither the conduct of the parties nor the chain of correspondence
deflects us from the conclusion already reached, In this view, the inference is
inevitable that arbitral clause in B1 and B2 bind the parties, so far as the
disputed machines are concerned.
Shri Sachin Chaudhri stated at the bar that
in regard to one of the items, 'some sort of settlement has been reached,
although Shri Tarkunde does not agree. We merely. mention this and leave it at
We must further state that Shri Tarkunde did
assure the Court that irrespective of the result of the appeal, the appellant
was agreeable to the arbitral reference going before any Tribunal of
Arbitration of any Chamber of Commerce in India. We hold the party to that
In conclusion we allow the appeal, but, in
the circumstances, direct the parties to bear their respective costs. We
further direct that if the respondent intimates the appellant in writing on or
before 13-722SCI/77 176 August 15, 1977 that he chooses any particular tribunal
of Arbitration, set up by any Chamber of Commerce in Bombay or Calcutta, the
reference of the dispute will go to that body.
If, however, no such intimation is made, the
Tribunal, of Arbitration of the Bharat Chamber of Commerce will have jurisdiction
and will continue the proceedings. The arbitrators will decide, according to
clause 8 in Annexures B1 and B2, the rights and liabilities of the parties. The
parties will bear their respective costs throughout.